How extra payments save interest
Most auto loans are simple interest loans: each month you pay interest on the balance you still owe. Money you pay on top of the required payment goes to principal, so every later month's interest is smaller and the loan ends sooner.
Monthly interest = Balance × APR ÷ 12
New balance = Balance + Monthly interest − (Payment + Extra payment)
The calculator works out your current payment from the balance, rate and months left, then repeats this step month by month with and without the extra payment.
Example
You owe $20,000 at 8% with 48 months left, so your payment is $488.26. Adding $100 a month brings it to $588.26.
- Payoff time: 39 months instead of 48, so you finish 9 months early
- Interest: $2,756 instead of $3,436, a saving of $680
| Extra each month | Paid off in | Interest saved |
|---|---|---|
| $50 | 43 months | $378 |
| $100 | 39 months | $680 |
| $200 | 33 months | $1,131 |
Before you pay extra
- Tell your lender to apply the extra money to principal, not to next month's payment. Many lenders have a "principal only" option online.
- Check your contract for a prepayment penalty. They are uncommon on auto loans, but some lenders charge one.
- Pay off higher-rate debt first. Credit card balances at 20% or more are a better target than a car loan at 6%.
- Keep an emergency fund. Money paid into a car loan is hard to get back if you need it.
Frequently asked questions
Is it smart to pay off a car loan early?
It saves interest equal to your loan's rate, risk free. It makes the most sense when the rate is high and you already have an emergency fund and no higher-rate debt. With a very low promotional rate, investing or saving the extra may earn more.
Does paying off a car loan early hurt my credit?
Your score may dip slightly when an installment account closes, but the effect is usually small and temporary. Paying on time matters far more.
What is a precomputed interest loan?
Some loans, mostly from subprime lenders, calculate all the interest up front. Paying early saves less on these, and federal law bans the Rule of 78 method only for loans longer than 61 months. Check your contract or ask your lender whether your loan uses simple interest.
Is a lump sum better than monthly extra payments?
For the same total amount, paying earlier always saves more interest, so a lump sum now beats spreading it out. You can enter both in the calculator.
Last reviewed: 2026-10-31